10 August 2011

Market volatility has increased significantly. I like Tsupitero’s clear and direct take on the matter:


May I just add, the basic approach to volatility management (if you really believe in the market, whether going long or short) is to adjust your trade positions proportionately. Suppose you are betting on something that moves 0.5% per day and are comfortable with a stop loss of 0.5% of what you bet… what do you do if you now want to get in, but notice it now moves 3% per day? If your initial plan was to bet X amount of money, volatility-based money management would suggest you now bet X / 6. Now if what you bet on hits you with the maximum 3% drop, it ultimately hits you 3% / 6 = 0.5%. Nice.

Imagine then, PWR and ZHI when they were crawling quietly along the floor moving 1% a day (if at all). Let’s say a speculator wanted to invest 1M Pesos, with a 1 day stop loss risk of 1% (10,000 pesos). Lo and behold! It starts moving 50% a day. You missed the boat! What to do? What to do? 1,000,000 / 50 = 20,000 Pesos is your new bet size. Now if your worst case scenario of 1 day stop loss is hit (50% drop), TADA… you’ve lost 10,000 pesos, which was all you were willing to risk in the 1st place!

Yesterday, 19 of 20 top traded stocks were down, with 1 unchanged. Today, 19 of 20 top traded stocks were up, with 1 unchanged. Talk about financial tsunami. The past few days have been like waves of water, carrying a great majority of world stocks in the same general direction each day.

It’s interesting to consider what it is we are witnessing. Classic herd mentality? Is this the flow of Chinese or American money, perhaps both? Are the investment banks behind this? Maybe it’s that season again when trend-following systems are much too popular for their own sake and a few earth-shattering drawdowns purge weak hands off their TF methods.

Check out Spyfrat’s new post. Some good food for thought:


I envy Mr. Spalding, who just timed today’s bounce to perfection. Amazing! Hats off. I never try to fish the bottoms, I just go for the middle of trends, so I’m still out right now. In my opinion, there’s still a lot of ground to make up for before I consider getting back in.

PSEi closed up 133.11 points at 4,290.14. It’s getting close to Monday’s close at 4,331.24, but far away from even last Thursday’s 4,501.53. Here’s the thing about the higher volatility we have these days – The market may be going up, the market may be going down. In any case, the market is going to get there FAST. With the NBA lockout, Bloomberg is the new name in Sports Entertainment.

25-26. Heads. How long it’s been. More flipping ahead.

This entry was posted in Philippine Stock Market and tagged , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s